Tax Loss Harvesting for Crypto

Written by hemratna

It Is Harvest Time! What Crypto Investors Should Know About This Smart Tax Strategy

The crypto markets had a volatile 2018, and that might mean you lost money on your cryptocurrencies. Of course, that’s not the outcome any of us hope for, but the good news is that there is a way to recoup some of that apparent loss.

“Tax loss harvesting” is a strategy that can help you reduce investment losses. Since crypto is treated as “property” under IRS rules, that means the same capital gains rules apply. So any crypto losses can be used to offset gains on other investments you traded, such as stocks in your portfolio.

Here’s everything you need to know about how you can offset your crypto losses by putting tax loss harvesting to work using ZenLedger’s Tax Loss Harvesting tool.

DOES THIS APPLY TO ME?

Do you have gains from other investments this year (like stocks) that you’ll need to pay tax on for your 2018 return? If so, you can use losses from crypto for a tax win, by offsetting any gains you had in other positions and/or offset even ordinary income. You will most likely want to REALIZE enough capital losses in crypto in order to OFFSET your capital gains in stocks or other places.  You can also often use up to $3,000 USD in capital losses towards income you earned.

THE DEADLINE IS DECEMBER 31ST

Don’t delay! The deadline for realizing losses on your crypto is DECEMBER 31st. You will need to sell your crypto at a loss within the 2018 calendar year if you want to harvest those losses to offset other gains you will have to pay the IRS this year.

HOW ZENLEDGER’S TAX HARVESTING TOOL WORKS

Our tax loss harvesting tool lets you know how many unrealized capital losses you have in each token type. Once you see this preview, you can then decide if you want to realize the loss. You can decide which token(s) you want to realize the loss on, and by how much.

Step #1: Launch the Tool

After you upload your transactions, you’ll see a menu item on your dashboard:

Click on this link and we will begin to run our tool. It will take about 15 seconds to process.

Step #2: Reading the Results

The output of our tool is a Google spreadsheet that will open in a new tab of your browser. Each tab represents your unrealized capital loss.

The first two tabs are summaries of your total potential losses to harvest, organized by currency. You can toggle between LIFO and FIFO accounting methods in the spreadsheet. There will be a difference between the two.

Tab 1: Summary by FIFO 

This tab summarizes your losses as accrued by using the FIFO accounting method (more widely recommended by tax experts). Please note: You must be consistent year to year and between your tax loss harvesting and your reporting on your 8949 or Schedule D. You cannot switch between these, you have to chose one and stick with it.

Tab 2: Summary by LIFO 

This tab summarizes your losses as accrued by using the LIFO accounting method. Please note: You must be consistent year to year and between your tax loss harvesting and your reporting on your 8949 or Schedule D. You cannot switch between these, you have to chose one and stick with it.

Tab 3: FIFO Ordering of Sells

This table shows you all of the coins you currently own that have an unrealized loss using the FIFO Accounting method. This is the raw data we use to create your summaries on tab 1 and 2.

Tab 3: LIFO Ordering of Sells 

This table shows you all of the coins you currently own that have an unrealized loss using the LIFO accounting method. This is the raw data we use to create your summaries on tab 1 and 2.

Choose if you want to realize all of your capital losses in crypto, or just enough to offset your non-crypto capital gains and $3,000 in income taxes.

Step #4: Realize Losses by Selling Your Crypto  

Once you see where you have losses to harvest, it’s up to you to take action: Share this data with your CPA so the two of you can decide on the best approach, or login to your exchange(s) and sell your coin(s).

The ZenLedger tax loss harvesting tool tells you what coins have unrealized losses, but we do not direct you to an exchange or wallet to sell from. This is because all your coins are in the same “accounting” bucket.

Check out the explainer video for our tool from CEO Pat Larsen below. 

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